Investors should prepare for more volatility in year ahead

Investors should prepare for more volatility in year ahead

THE LAST 12 months have proved a rollercoaster ride for investors, with markets across the world experiencing significant volatility for much of the year.

Despite this, a poll carried out by interactive investor found that private investors remain relatively optimistic about the year ahead.

Having polled 699 investors, the platform business found that 30 per cent expect the FTSE 100, which is currently sitting at just below 7,000 points, to close somewhere between 7,000 and 7,500 next year while a similar proportion (34%) expect it to close between 6,500 and 7,000.

A more bullish 13% predict it will climb to climb between 7,500 and 8,000, while just 8% expect it to break the 8,000 barrier for the first time in its history. Similarly, a bearish 8% of investors think the index will close next year down at between 6,000 and 6,500, while 7% expect it to sink below 6,000.

Moira O’Neill, head of personal finance at interactive investor, said: “Given the volatile year we have experienced, many investors seem relatively sanguine about the prospects for next year.

“Even so, after a year that has been difficult to navigate for even the most seasoned investment manager, it may well be time to look to out and out active managers who are proactively seeking to beat the market as we move into 2019.”

Despite the findings of the survey Sheridan Admans, an investment manager at The Share Centre, believes that investors should prepare themselves for higher volatility - and lower returns as a result.

“This is a consequence of a confused outlook dogged by trade tensions, monetary conditions, corporate earnings expectations, political posturing, inflation and pressure from governments on central bankers to keep condition loose,” he said.

“We continue to expect returns from equities to moderate ahead. We maintain a preference for equity investing over fixed income and encourage investors to have some exposure to gold, as a diversifier at this point in the cycle.

“Where investors need some exposure to fixed income in their portfolios we believe they should be shortening their duration exposure and increasing the credit quality.”

In terms of geographies, Mr Admans said he favours the Japanese, Brazilian and Indian markets while taking a more cautious approach to the US and China.

That said, he added that “investors should not be too light in their US exposure as we continue to see opportunities in technology, healthcare and infrastructure given they are all sectors in which the US dominates”.

Although the tech sector has delivered superior returns in recent years, Mr Admans said he expects to continue to see opportunities there, albeit from businesses that use technology rather than pure-play tech companies.

Similarly, he said that healthcare is one of the most attractive sectors to invest in in 2019, although he warned that company valuations are likely to be more challenging than they have been this year.

“In periods of uncertainty investors have, on a relative basis, fared better in healthcare and consumer staple stocks,” he said.

Adrian Lowcock, head of personal investing at Willis Owen, said that while he expects global growth to weaken in the next 12 months, there are a number of fund managers who should still be able to generate returns.

Noting that Mr Harker focuses on the largest 300 listed companies in Japan, Mr Lowcock said the manager “selects those with strong fundamentals and managers and which offer the potential for turnarounds”.

“With his clear focus on value, a long-term investment horizon and disregard for the benchmark, the portfolio differs significantly versus the stock market index,” he added.

The Lazard Emerging Markets fund is another that Mr Lowcock favours, noting that its manager James Donald’s “insights are a key advantage”.

“The team taps into Lazard’s deep pool of analytical resources, helping it to form views on different companies and industries,” he said. “Each team member spends more than eight weeks meeting with company managements and local experts. The focus is on firms with improving financial productivity that has been overlooked by the market.”

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